JcConsulting

Talking to Loved Ones About  Disaster Preparedness

Welcome to this week’s JcConsulting.com Newsletter.

 I thought I’d cover a couple of ways to talk with reluctant loved ones about preparedness.

Once you realize how important and urgent it is to prepare your family for disasters, getting loved ones on board can be one of the most frustrating and heart wrenching parts of the process.  Whether it is getting someone in your own house to "see the light" or getting a friend or loved one to take threats seriously, this can cause almost as much stress as the disasters you’re trying to prepare for.

I’ve got a couple of approaches that I want to share with you today that will help you with people who like Dave Ramsey, have an IRA, Roth, 401(k), or other investments, or just see the wisdom in saving.

I was listening to Dave Ramsey’s financial radio show on the way home earlier this week as I often do and he was suggesting, as usual, that someone needed to follow his steps to financial peace.

The first step that he suggests is to get a $1000 emergency fund.  Interestingly enough, the reason for doing this is "for those unexpected events in life that you can’t plan for… It’s not a matter of if these events will happen; it’s simply a matter of when they will happen."

The second step is to pay off all debts except the house.

And the third step is to build up 3 to 6 months of savings to serve as an emergency fund.

I can’t remember ever talking to anyone who thought that having an emergency fund was a bad idea.  Even people who are dead set against preparedness or even simple food storage will agree that having a rainy day fund is a smart idea.

I’d venture to say that every adult has either benefited from having an emergency fund or wished that they had one at some point in their life.  I’ve experienced both of those situations and I can tell you that when you find yourself in "emergency" mode, you’ll always wish you had more in your emergency fund than you do.

Most people stop with the thought that an emergency fund is a good thing.  But if you peel this onion back a little bit, it opens up a whole new way of looking at emergency funds/rainy day funds and preparedness and will give you a solid foundation for talking with someone who believes in having an emergency fund about preparedness.

Let’s start by looking at the kinds of expenses that people think they’ll use their emergency funds for.  In many cases, it’s for a car repair or medical expenses.  But in today’s environment of high unemployment, people generally accept the fact that they might be using their emergency fund to pay for basic necessities like food, shelter, fire, water, and possibly fuel for transportation after losing their job(s).

Forget about the fact that there may be a regional disaster, people lose jobs every day and experience their own personal emergencies.  Unemployment rates are on the news almost every day and if you know more than 10 people, chances are very high that you know someone who’s lost their job in the last year or two.  The loss of a job is much more realistic and easier for the general public to accept than the possibility of a failure of the electrical grid, rioting, fuel/food shortages, or any other major disaster that could cause a breakdown in civil order.

So, if you’re talking with someone who has an emergency fund set aside for a rainy day, ask them if they found themselves in a situation where they needed to use it, if some of that money would go to buy food.

This makes sense for a few reasons, namely:

If they simply buy larger quantities of the items they currently eat, there’s a good chance they’ll save money.  If they have 3-6 months of expenses set aside, then they’re already planning on spending a portion of that money on food.  There is no additional expense to holding some of their emergency fund in food rather than dollars.

If the disaster that causes them to tap into their emergency fund causes a breakdown in the supply chain for stores, they’ll be able to eat their emergency fund if some of it is in food rather than dollars.

If they’re keeping their emergency fund in the bank and there is an emergency that effects the banking system, they’re stuck.  If they convert some of their emergency fund from dollars to food, then they’ll still be able to feed themselves.

This is one of the most important points.  Food inflation.  It was a root cause of the coup in Tunisia, the upheaval in Egypt, and unrest and rioting in several other African countries.  The US CPI for food is forecast at 1-2% for 2011, but it’s kept artificially low.  5%-7% is much more realistic. On February 2nd, 2011, the UN reported that world food prices reached a historic peak.  The US Department Of Agriculture has said that food inflation will accelerate through the first half of 2011, with spikes for corn (up 89.25% in the last 12 months), wheat (up 80.63% in the last 12 months with a 71% swing between June and August), and coffee (up 42.7% in the last 12 months).  The ingredient cost to make pizzas is up over 100% in the last couple of years.  Corn and wheat price increases will show up in meat, dairy, cereal prices and fuel that contains ethanol.Want more reason to convert some of your emergency fund to food?  THIS WEEK, Mexico lost 20% of their 2011 corn crop due to frost.  It also looks like 988,000 acres (1,544 square miles) of wheat was also lost, which will take 5-6 years to fully recover from.  If you can convert some of your emergency funds to food, it looks like it might be a smart move.As a note, there is a LOT of misinformation floating around about this on English prepper sites, with many sites saying that 80-100% of ALL produce in Mexico was killed.  Certain areas had 70 or 80-100% crop losses, which will affect our bean, melon, tomato, and other vegetable prices, but I can’t find any reputable source claiming nationwide losses at that level.  The best information on this topic has been on Mexican news websites written in Spanish…NOT on English sites in the US.

In short, if you convert some of your emergency funds to food right now, you could get significantly more for your money than if you wait until an emergency happens.

Food prices could also go down, but droughts in China, bad US money policies causing a weaker dollar, and wasting farmland and corn to produce ethanol will all serve to keep food prices high and possibly push them higher.

You might need to actually pull out a pad of paper and write out some numbers on this.  Let’s say that the person you’re talking with has $3,000 in their emergency fund.  Ask them how much of that they’d be willing to spend on food in an emergency.  Let’s say it’s 20% or $600.  It may be more or less, but let’s use $600.

Whatever number they come up with, ask them if there’s any reason why they wouldn’t want to go ahead and buy $600 of non-perishable foods that they already eat before the prices go up.  Even if they buy $600 worth of Minute Rice, canned beans, instant oatmeal and multi-vitamins instead of buying in bulk, they’re going to get several months of food.  It won’t make for well rounded, gourmet meals, but it will be filling and provide calories and protein.

If the light clicks with food, you can use the same line of reasoning to get them to keep extra fuel for their car, grill, and heating system on hand, as well as any other necessities.  This isn’t a complete survival plan, but it IS a good, solid baby step.

Preparedness as Asset Allocation and Diversification

Asset allocation and portfolio diversification is a strategy that financial planners have been pushing for years to try to protect their clients from market risk.  One oversimplified way of looking at it is that someone in their 20s who’s saving for retirement can stick all of their money in high risk investments that have the potential for high rewards.  As you get older and have less time to recover from any losses in your retirement account, you allocate a bigger and bigger percentage of your retirement money to conservative investments.

I recently talked with a gentleman who sells real estate and  uses this exact strategy to sell small parcells of land.  He’ll ask people how much of their retirement they have in VERY conservative investments that aren’t making them any money.  When they give him a number, he figures out how big of a ranch  they could buy and stock with the same money in case the poo-poo  hits the fan.  Normally, they’re people who have car insurance, homeowners insurance, health insurance, life insurance, and sometimes long term care insurance.  This is simply a way of converting money that isn’t doing anything for them into SHTF insurance.

If you or a loved one has a big nest egg, this may be an approach you can take to talk with them about preparedness that will ring true with them.

If you aren’t at the stage in life where you have money to go out and buy land, but you are saving for retirement and some of your money is going into VERY conservative investments, you might want to take some time and look at food storage and preparedness items as a great way to diversify your savings.

At any time, email providers could decide to block or delay "unacceptable" content having to do with preparedness like one big search engine already has.  The FCC could wrap up  Net Neutrality and ban preparedness sites.  President Obama or Secretary Napolitano could decide to use the "Internet Kill Switch" and ban preparedness sites.  Or "simple" disasters like terrorist infrastructure attacks on the internet, EMPs, or CMEs could knock out the internet.

In fact, as I was sending out the notification about this week’s newsletter, my server went  down and Facebook decided it didn’t like the IP address I was logging in from and locked me out.

You know from my articles that I’m all about taking immediate action. The fact is that we don’t know how much time we have until we will need to use our preparedness skills and it’s vital to focus on skills that you can develop as quickly as possible.

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